Answer Happy

7) Which of the following statements regarding callable bonds is FALSE? A. The holder of a callable bond faces reinvestment risk precisely when it hurts: when market rates are lower than the coupon rate she is currently receiving. B. When yields have risen, the issuer will not choose to exercise the call on the callable bond. C. The issuer will exercise the call option only when the prevailing market rate exceeds the coupon rate of the bond. D. A callable bond is relatively less attractive to the bondholder than the identical non- callable bond. 8) Which of the following statements is FALSE? A. Because investment in permanent working capital is required so long as the firm remains in business, it constitutes a long-term investment. B. Because temporary working capital represents a short-term need, the firm should finance this portion of its investment with short-term financing. C. Temporary working capital is the difference between the lowest level of investment in short-term assets and the permanent working capital investment. 3 Please turn over D. The matching principle states that short-term needs should be financed with short- term debt and long-term needs should be financed with long-term sources of funds.